Comment by rchaud

That is leveraged speculation on a future listing before real float, real index flows, or real public market ownership exist. With a 20% premium that is evidence that the hype machine is working, and the best evidence of engineered retail FOMO.

Two of those YouTube links are to Patrick Boyle who is a very respectable and knowledgeable ex hedge fund manager who dives DEEP into the topic while remaining entertaining. It’s a hilariously outdated take to say that YouTube content guarantees a lack of value or authority.

And your argument is?

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> they are dangerous for progress of humanity

A tiny bit hyperbolic for someone who's not a fan maybe? :)

Concentrating the cognitive power of AI in the hands of just a few sociopathic Capitalists is NOT, I repeat NOT PROGRESS.

>> a lockup period ending matching with mandated index fund buying is emphatically good for IPO buyers

I cant believe you wrote this. You are making Ed Zitron case for him. And the lockup period in this case has been reduced to 15 days or less:

https://youtu.be/T8e2FbwN7dw?t=96

https://youtu.be/T8e2FbwN7dw?t=123

> a major cliff every IPO company faces: liquidity seeking by insiders on a schedule.

LOL, so the insiders can dump their shares. This is exactly What Zitron says. Maybe we should have Mark Karpeles' or SBF's opinion on this matter, too.

The company with the best model by far?

If I had to short 3 things, it would first be the NASDAQ 100, followed by anything Elon, then the greenback

Yes, it's the same principle that gets you financial advisors who push you into high-fee fund choices that earn them kickbacks. Completely understandable from the PoV of these parties' self-interest, yet entirely contrary to your own self-interest as a customer and investor.

You seem to be confusing "listing" - the stock exchange where a company chooses its stock to trade (i.e. NYSE, AmEx, Nasdaq) with "indexes" - a list of stocks that is often the basis for index funds.

The Nasdaq 100 is not the same as Nasdaq. A company can be in many indexes but only one listing. There may have been competition for the listing but there is not competition between indexes for inclusion.

There was never a competition. It was explicitly designed to get a better "deal" where they wanted to open it.

To me it's more about how real the financial strength of the company is versus being propped up on some shady accounting. Not sure if that was the case with Carvana or any of these new IPOs, but personally I have my nest egg in the S&P and don't want sharks abusing the index for their pump and dump exit strategy.

No, but how about the 500 that

have been profitable under GAAP accounting rules for at least 12 months

have a public float of at least 10% (so that new investors have some governance rights)

have traded for at least 12 months (and won't have sudden changes in public float or shares available due to lockups and recent listing)

> Ah, so you'd like the passive broad market index which contains the 500 biggest good companies?

And a reminder: not just "good" now, but good over time.

Good companies turn bad (Apple almost went bankrupt), and bad companies can become good (see again Apple; in the UK, recently Rolls-Royce).

That's what "value funds" do.

You can just pick stocks - if you pick a fairly low number of large stocks in broad categories with correct weight, you will track the index.

ESGV

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My opinion, yes. But if someone said they had invented anit-gravity, then showed you a bowling ball "floating" but with a sheet covering any potential support, you'd be pretty suspicious. And if they refused to remove the sheet, and had previously been convicted of fraud, you'd probably be extremely suspicious. But it would still only be your opinion until the sheet was removed.

See my reply to @rtpg. The short answer is that it is believed they are selling high-risk loans to a company they control, making it look like the publicly traded Carvana is some kind of miracle in the car industry while offloading the risk to anonymous shell companies.

https://en.wikipedia.org/wiki/Carvana#Controversy

"In January 2025, short-selling investment firm Hindenburg Research published a report titled "Carvana: A Father-Son Accounting Grift For The Ages," in which it disclosed a short position against the company. The report alleged that Carvana's financial turnaround was a "mirage" propped up by accounting manipulation and lax loan underwriting."

"A class-action securities fraud lawsuit is proceeding against Carvana, its founders, executives, and underwriters in the United States District Court for the District of Arizona."

(i have no opinion on the matter, just functioning as your google)

https://hindenburgresearch.com/carvana/

Herbalife has decades of profits from selling wannabe Herbalife distributors a dream of financial independence they'll never achieve though, which might be unethical but is a bit less likely to lose your pension fund money than a company accused of getting 73% of its earnings from a deal with a convicted fraudster...

Whenever someone says nowadays, they're highlighting recency bias. The goals of holding a broad market ETF are diversification leading to sleeping well over the long term (at least to me).

Crime pays. But when you go that far, why stop at investing in scams? Surely you can make money faster by robbing old ladies at knifepoint?

How well do SCAM500 stocks do over a time period that includes two recessions, compared to SP500 ones?

I've no doubt that the short-term gains during a bull market on all sorts of garbage are significant.

They're an outlier in the industry in terms of profit per car. But they don't actually get revenue from selling cars, their revenue comes from selling car loans. So they're making the additional margin on the financing. They are also famous for not turning down loan applications. So putting the pieces together, it seems like they are selling high risk loans at a healthy profit. Which brings up the question of who is buying those loans. They don't disclose the buyers, but claim that those buyers are not controlled by Carvana or its parent. Given the history of fraud, it's hard to take those claims at face value. The suspicion is that they are selling the loans to family-controlled shell companies and leveraging the stock to finance the scheme.

shady debt offloading onto its sibling financing entity, which is run by Carvana CEO's father, a man convicted of fraud

0.8% of drag is a lot when you can do basically the same thing by not strictly following the index.

There are funds from Dimensional and Avantis that are basically just index funds but with a bit more leeway to avoid these obvious pitfalls, and from what I saw they do perform approximately 0.5% better per year.

>This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor.

This is so wrong I'm not sure you understand common sense economics and by economics I don't mean anything you can find in a text book. If I invest nothing, the other investors or traders can still make a profit without costing me anything.

Opportunity costs are never real costs. If I have $10, and the traders do weird things with the prices and I don't spend the $10 on anything, I still have $10. The traders failed to cost me.

You're also ignoring the underlying issue which is that the valuation of SpaceX on the open market is different than the valuation it could get from forcing index funds to buy in early. If the stock is worthless then short sellers will make money, but short selling only works if the short sellers don't get squeezed. If the passive funds buy two weeks in, then early traders know that they can sell to a greater fool at inflated prices. Any short seller who is trying to discover the true price will stay back and short directly after the indexes have bought. That's the perfect moment for them. They want the post IPO hype and bull market, only for the stock to collapse within a year.

Those filters for S&P 500 inclusion criteria have changed many times. They are not sacred nor set in stone. The question is, do those filters, which were designed for GAAP profitable traditional companies & discriminate against fast growing cash-flow-reinvesting startups that prioritize growth over profit, unnecessarily exclude major players in the U.S. stock market? The S&P inclusion criteria reward companies that prioritize profit over growth.

SpaceX, Anthropic, and OpenAI are all giga-caps preparing to IPO, and none of them will be eligible for S&P inclusion because of the 12-month profitability requirement. At current valuations, all are part of the top 20 largest companies in the US. These companies may be excluded from the S&P500 for potentially years, until they reach 12 months of profitability.

And you are vastly overstating the effect of S&P500 fast track inclusion, the plan was to reduce it from 12 months to 6 months; which is more than enough time for the market to find a price.

> So what's the reason for fast entry specifically?

Inclusion in as many indexes as possible is basically the definition of "too big to fail." It's the ultimate de-risk to know that if you fuck up badly enough the government will just give you everyone's money.

Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds.

In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the next 5 years. These are not bad companies, but because the S&P inclusion criteria were written for old GAAP profitable companies, and not high-growth companies that invest their cashflow into company growth over profits. Excluding some of the most civilization changing companies from the benchmark means the benchmark is doing a terrible job.

S&P claims their S&P 500 product is the "best single gauge of U.S. large-cap equities". For this benchmark to be accurate, at a fundamental level, this benchmark has to follow the market and reflect current market conditions.

The market decides what the large-cap U.S. equities are, not S&P. If S&P excludes some of the largest U.S. companies, which based on their current rules, will exclude all of Anthropic, SpaceX, and OpenAI; then they do a poor job reflecting the benchmark they claim to follow.

It's not S&P's fault that market conditions have changed.

Yes, Matt Levine said that, but he also argued the other side's point of view, as he regularly does.

I completely agree. People have parroted the benefits of passive investing and blindly following the benchmark index for decades, yet the instant some overpriced turds (Anthropic, OpenAI, and SpaceX) are considered being adding to the benchmark, they backtrack and fight tooth and nail against including them.

All three companies are large enough by market cap ($1T+) to qualify for the S&P 500 benchmark, which claims to track the top 500 largest U.S. large-cap equities.

They have a point (not wanting to invest in overpriced equities), but if you don't like the companies that surface through passive investing then don't be a passive investor. It sounds like these people want active investing instead. If that's your position, just buy actively invested funds, not ruin the benchmark for everyone.

S&P is caught in a bind, because if they add these companies to the index, it would aggravate millions of passive investors.

Your baseball cheating analogy makes no sense here. Rules against corked bats / steroids exist so people don't cheat at a sport and all players can compete equally. S&P rules are supposed to make the index reflect the market. Totally different.

The profitability requirement is something made up by the S&P committee. If that rule ends up excluding trillions in market cap, the rule has defeated its own purpose. The 12 months of profitability requirement punishes high-growth companies that invest their FCF into growing the business vs taking profits.

It excludes companies like Amazon, which when ran by Bezos, was famously unprofitable and invested all free cash flow into growing the business and never turned a significant profit until >20 years after its founding.

You have your history backwards. The S&P 500 was created in 1957 as a benchmark. The first investable index fund tracking it (Vanguard's) wasn't created created until 1976. Vanguard created their fund to track the benchmark, not the other way around.

And if you need a second, different index to function as the true market benchmark because the S&P 500 no longer reflects the actual market, then you just agreed the S&P 500 is no longer an adequate benchmark. You just agreed with my point.